Real estate has always been a worthwhile investment for many people in Egypt, but in 2022 and 2023, because of hard-currency shortages and uncertainty around the value of the pound, there was an unusual surge in real-estate demand, seeing it as a major store of value and positioning it on an equal footing to traditional assets like gold and dollars.

Property prices skyrocketed, with a 70 per cent surge seen in 2022 alone. With the devaluation of the pound in March 2023, there was a 100 per cent increase, contrasting sharply with previous annual growth rates of 15 to 25 per cent. Nonetheless, demand persisted, with investors eyeing profits of up to 100 per cent on an annual basis.

However, economist Hani Tawfik has recently warned on widely shared posts on social media and later on television of a looming real-estate crisis. He has cautioned that “current property sales come with 30 per cent interest. With the government’s plans to decrease interest rates to 16 per cent by 2026, properties sold today could lose half their value and trigger a collapse in prices.”

Tawfik’s comments prompted prominent figures in the real-estate market to respond on the same platforms. Fathallah Fawzi, vice president of the Egyptian Businessmen’s Association, refuted claims of a real-estate bubble, outlining 11 key points to support his stance.

He said that Egypt lacks a strong real-estate financing system beyond government-subsidised housing for eligible groups. He also said that property sales in Egypt primarily involve “off-plan” transactions, where unit construction commences one to two years post-sale and delivery occurs four to five years later.

If units from one phase remain unsold, development halts, leaving them as on the drawing board until sales are finalised.

Fawzi denied that supply is higher than demand in Egypt’s real-estate market. “With one million marriages every year, there is a need for at least 500,000 new housing units each year,” he said. Subsidised housing accounts for 90 per cent of this demand, with the state providing 450,000 units to eligible people, even if there are challenges in meeting this need leading to waiting lists and an accumulating shortfall.

Meanwhile, he added, the private sector caters to the remaining 10 per cent of demand for luxury and above-average housing, representing 50,000 units annually of which only 25,000 to 35,000 units are built each year.

He noted that problems could occur due to some people’s inability to pay the installments after paying a down payment on a real-estate unit. In this case, the developer will terminate the contract and retain 10 per cent of the total unit price, refunding the remainder in installments, he said. Buyers who have paid only 10 per cent risk losing the entire amount.

In such cases, “developers benefit by reclaiming units from defaulted buyers to add to their inventory or resell at higher prices,” Fawzi said.

The damage that occurs to the market in this case is a slowdown in sales due to the exit of customers who cannot pay the down payment and installments. For reasons such as these, Egypt will not experience a real-estate bubble, he added.

On 25 August, Hazem Badran, co-CEO and managing director of Palm Hills developments, told Bloomberg’s Asharq Business website that “Palm Hills has no intention of increasing prices on ongoing projects, given the market’s stability in the past three months.” He added that the company does not expect a surge in real-estate prices in the near term, especially “with the availability of the dollar and the stability of building material prices.”

“The demand for real estate in Egypt is likely to persist due to factors such as population growth, the development of new cities in east and west Cairo, and rising tourist interest in the North Coast,” Fawzi noted.

Domestic and foreign interest in the North Coast has grown since February 2023 when a large tourist development project, spearheaded by UAE investors, was announced in the Ras Al-Hekma prime coastal location.

Mohamed Samir, a real-estate financing expert, said that real-estate bubbles could be experienced in wealthier nations than Egypt. They occur in four stages, beginning with a gradual rise in prices making real estate appealing, with escalating demand due to its investment potential then leading to a shortage in supply.

People wanting to invest in real estate then emerge, wanting to buy it as an investment rather than as a place of residence. This is followed by a stagnation phase followed by a collapse in which investors avoid property, triggering a substantial decline in value.

Egypt has not exhibited the characteristics witnessed during the 2008 world financial crisis since 95 per cent of real-estate transactions in Egypt are “off-plan”. There is also an absence of large-scale purchasing power for real estate and of a comprehensive real-estate financing system.

Since the inception of the law regulating real-estate financing in Egypt, only 750,000 people have benefited from it, with a total portfolio of LE90 billion. This means that in any given year real-estate financing has represented less than one per cent of Egypt’s GDP.

“There is a crisis in the real-estate sector, but it is not a real-estate bubble,” Samir said. According to Central Agency for Public Mobilisation and Statistics figures in 2022, 122,000 real-estate units were built, while demand stood at two million, he added.

The Egyptian real-estate market is grappling with pricing and structural issues, blurring the line between roles in real-estate transactions, said Mohamed Fouad, a member of the Egyptian-British Businessmen’s Association.

Developers often take on multiple roles such as contractor, marketer, financier, and appraiser, leading to a collection of responsibilities by one entity, which could exacerbate the problems of the real-estate sector, he added.

While Egypt’s real-estate market’s challenges do not mirror the 2008 global bubble, it nevertheless requires corrective actions. These should address pricing concerns, improve marketing strategies and property evaluation methods, and look at the structure of financing mechanisms to end up with a proper evaluation of real prices and curb speculation.

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* A version of this article appears in print in the 26 September, 2024 edition of Al-Ahram Weekly